My right hon. Friend has raised this matter in the context of his raising it in a number of other regards with respect to the Trade Bill, and it would obviously be appropriate for my ministerial colleagues in that Department to address it in that context. Today, it is my responsibility to deal with it in the context of financial services regulation, as I think I have done, but I do not want to deny the grave significance of the matter that he is raising, and indeed, my right hon. Friend Mr Mitchell has raised it with me, too. Obviously, these are complex matters on which others will respond in due course.
I will now address a number of amendments that seek to bring new activities into FCA regulation. New clause 7 relates to “buy now, pay later” products and would require the Treasury to bring those products and other interest-free credit products into the scope of financial services regulation. Those products can play an important role by providing a lower-cost alternative for people making purchases, especially larger items. As an interest-free credit product, “buy now, pay later” is inherently lower-risk than other forms of borrowing, and can be a useful part of the toolkit for managing personal finances and tackling financial exclusion.
However, I am very aware of the potential risks, particularly in relation to consumers’ taking on unsustainable levels of debt. A delayed payment on an occasional basis for someone who has the means to make those repayments is different from accumulating unsustainable levels of debt, which cause that individual to seek additional financing from high-cost lending. I recognise that the conflation of those two activities is the motivation. The former interim CEO of the FCA, Chris Woolard, is undertaking a review into change and innovation in the unsecured credit market—specifically, the emergence of “buy now, pay later” products, which I recognise have grown considerably in recent months. Mr Woolard is due to publish his findings shortly, and I stand ready to take swift and proportionate action following the conclusion of the review, reflecting carefully on what he says. I have worked closely with him over the past three years when he has made interventions in his previous role, and I will address his report and engage with the industry and interested parties at that point.
I now turn to new clauses 24 to 26. I have a great deal of sympathy for borrowers who are unable to switch their mortgage deal and I am committed to finding practical ways to help. Progress has been made over recent months. This is an important topic and I will respond in a little detail. I am afraid that the new clauses risk a number of unintended consequences. It would be disproportionate to support a small number of borrowers, as it would be likely to have an impact across the whole of the mortgage market and in the worst case could damage financial stability.
On new clause 24, the benefit to borrowers of extending the FCA’s regulatory perimeter is likely to be minimal. The vast majority of firms that manage the key mortgage activities, such as rate setting, are already FCA-regulated. Furthermore, where those are separate organisations, the beneficial owners, the ultimate economic owners, do not manage relevant activities. Therefore, extending the FCA’s oversight to ownership would also have little material impact on consumer outcomes.
This is a live matter for discussion with the FCA. If I believe that there is a meaningful additional value from that premature extension, I will look at that sympathetically, but that is not my judgment at this point. We are yet to see evidence that the challenges that borrowers are facing would be remedied by extending the FCA’s remit. It is important to emphasise that extending the perimeter would not allow consumers to access new deals or cheaper rates that they could not already. The new clause not only seeks to extend the FCA’s remit to more firms that engage in mortgage lending, but also to the type of mortgages that are regulated. That would bring into regulated scope lending such as buy-to-let mortgages and would fundamentally reshape the regulation of the mortgage market in the UK.
New clause 25 seeks to cap the interest rates paid by mortgage prisoners. Data from the FCA suggests that a narrow majority of borrowers with inactive lenders pay less than 3.5% interest. Compared with those with similar lending characteristics, consumers with inactive lenders only pay marginally more—about 0.4 %–than those with an active lender. Capping standard variable rates on mortgages with inactive lenders would represent a significant intervention into the market, potentially having an impact on financial stability, as it would restrict lenders’ ability to vary prices in line with market conditions. I believe that such an intervention would be disproportionate, and potentially counterproductive.